RBI Bars Paytm Payments Bank From Offering Services; What It Means For Customers and Other Stakeholders Paytm Payments Bank has been ordered by the RBI to stop accepting fresh deposits in its accounts or popular wallets or undertake credit transactions after February 29, 2024

The Reserve Bank of India (RBI) on Wednesday ordered Paytm Payments Bank to stop accepting fresh deposits in its accounts or popular wallets or undertake credit transactions, including the Unified Payments Interface (UPI) facility after February 29, 2024.

This means no further deposits, credit transactions, or top-ups will be allowed in any customer accounts, prepaid instruments, wallets, FASTags, NCMC cards, etc. after February 29, 2024. The nodal accounts of One97 Communications and Paytm Payments Services are to be terminated at the earliest, in any case not later than February 29, 2024. Notably, on March 11, 2022, the RBI directed Paytm Payments Bank to stop onboarding new customers with immediate effect.

"No further deposits or credit transactions or top-ups shall be allowed in any customer accounts, prepaid instruments, wallets, FASTags, NCMC cards, etc. after February 29, 2024, other than any interest, cashbacks, or refunds which may be credited anytime," Yogesh Dayal, a chief general manager with the central bank, said in a press statement.

The Massive Trickle-down Effect

Besides the huge impact it is going to have on One97 Communications, the parent company of Paytm, it is going to have a multi-dimensional micro and macro impact on different stakeholders and ecosystems.

Paytm said it will take steps immediately to comply with the RBI's directions, and it expects a worst-case impact of 3 billion-5 billion rupees ($36 million-$60 million) to its annual earnings before interest, tax, depreciation and amortisation (EBITDA).

Here is a quick look at possible and immediate impact on other stakeholders.

How it can affect customers and merchants

After February 29, Paytm Payments Bank will not be onboarding new users. What this means is if you are not an existing user, after the mentioned date, you will not be able to set up a new account on the platform.

For the existing users, this means that they will not be able to use their Paytm wallets, Paytm Fastags, or Mobility Cards. However, they can withdraw without any restrictions, as per the announcement. This means you will not be able to receive or send any money from your account. However, whatever balance money you have in your Paytm account, you will be able to access and withdraw that money.

Regarding merchants, the company said in its press release, "The Paytm Payment Gateway business (online merchants) will continue to offer payment solutions to its existing merchants. OCL's offline merchant payment network offerings like Paytm QR, Paytm Soundbox, Paytm Card Machine, will continue as usual, where it can onboard new offline merchants as well."

Impact on the stock markets

Full-service investment banking and capital markets firm Jefferies double downgraded Paytm's stock to "underperform" after the RBI's move and slashed its target price to 500 rupees from 1,050 rupees. It said that regulatory and reputational issues can each impact 20%-30% of EBITDA. "Paytm's business impact will largely come from reputational concerns arising from governance/compliance and hence, the path to resolution will be from stronger compliance with regulations and revoking of RBI measures," it has said.

How this will affect the burgeoning fintech sector

Paytm is one of the largest fintech players in the country. And, this move by the RBI has come as a big blow to the ecosystem. Fintech experts have been raising concerns over how it is a major step down for the ecosystem. Ashneer Grover, former MD of BharatPe has called the move to be against all Fintech firms. He said that the decision would kill the sector altogether.

" I don't understand RBI. Clearly RBI does not want FinTechs in business - of late all regulations / moves are against Fintechs. Such moves will kill the sector altogether. The @FinMinIndia @nsitharaman @PMOIndia need to step in. Startups have been biggest creators of market cap and employment in last decade. Today IIM and IIT are struggling to place people - we as a country cannot afford such overreach ! Tom-Tom-Ing @UPI_NPCI to the world and punishing pioneers in the space is pure 'Doglapan'," said Grover on X, formerly Twitter.